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TLS Q3 Earnings Beat Estimates on Identity Strength, Guidance Raised
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Key Takeaways
TLS earned 9 cents per share, beating estimates by 125%, as revenues rose 7.3% to $55.2 million.
Telos ID growth lifted Security Solutions revenues 16.6%, while new Xacta orders exceeded $58 million.
TLS raised 2026 revenue guidance to $198.2-$200.7 million.
Telos Corporation (TLS - Free Report) reported adjusted earnings of 9 cents per share for the third quarter of 2026, unchanged year over year. The figure beat the Zacks Consensus Estimate by 125%, helped by stronger-than-expected performance in its Telos ID business.
Revenues rose 7.3% to $55.2 million, surpassing the Zacks Consensus Estimate by 10.4%. Security Solutions growth drove the increase, while the company's Information Assurance business secured more than $58 million in new Xacta and professional services orders.
TLS Rides Security Solutions Growth
Security Solutions revenues climbed 16.6% year over year to $54.18 million from $46.48 million. Expansion of large programs in the Telos ID portfolio led the improvement, with TSA PreCheck enrollment volumes also exceeding management's earlier expectations.
Secure Networks revenues declined 79.6% to $1.01 million from $4.97 million as programs reached completion. Security Solutions accounted for approximately 98% of quarterly revenues compared with roughly 90% in the year-ago period.
Telos Corporation Price, Consensus and EPS Surprise
New Information Assurance awards span Xacta products and professional services. Management expects the recently secured business to generate approximately $6 million in 2026 revenues and $20 million in 2027, with the contracts characterized as recurring rather than one-time projects.
The company's Xacta 360, Xacta.io and Xacta.ai offerings address security compliance, continuous monitoring and AI-driven automation. Recent engagements extend across defense, intelligence and civilian agencies, while management said previously discussed pending proposals remain separate opportunities.
Telos Brings Higher Profit in Q3 2026
TLS’ non-GAAP cash gross profit rose 3.1% to $23.76 million, although cash gross margin contracted to 43.1% from 44.8%. Both margins exceeded management's quarterly expectations.
TLS’ adjusted EBITDA grew 4.7% to $10.57 million from $10.10 million, exceeding management's guidance of $6-$6.8 million. This represented the highest quarterly adjusted EBITDA since the company's 2020 IPO. Adjusted EBITDA margin slipped to 19.2% from 19.6%, despite the stronger dollar profit.
Non-GAAP adjusted operating expenses increased 1.8% to $14.03 million. GAAP operating income reached $4.09 million against a loss of $2.47 million a year earlier.
TLS Maintains Robust Cash Conversion
Operating cash flow grew 3.3% to $9.44 million from $9.15 million. Free cash flow increased 11.9% to $7.39 million from $6.60 million, lifting the free cash flow margin to 13.4% from 12.8%. This marked the seventh consecutive quarter above a 12% free cash flow margin.
Telos ended September with $51.76 million in cash and cash equivalents compared with $53.18 million at 2025-end. The company spent $5.7 million to repurchase more than 1.2 million shares during the quarter, bringing year-to-date repurchases to approximately 2.8 million shares for $12.6 million.
Telos Sees Q4 Growth
For the fourth quarter of 2026, Telos expects revenues of $47.5-$50 million, implying 2-7% year-over-year growth. Management expects Information Assurance wins to support sales, with the non-GAAP cash gross margin projected at 43-44.5% on a more favorable mix.
Adjusted EBITDA is forecast at $7-$8.8 million, representing margins of 14.7-17.6%. Adjusted operating expenses are expected to increase approximately $1.2 million year over year, mainly because of higher labor and marketing spending.
TLS Raises 2026 Targets Amid 2027 Transition
Management raised full-year 2026 revenue guidance to $198.2-$200.7 million from $187-$195 million, implying 20-22% growth. It also lifted adjusted EBITDA guidance to $32.3-$34.1 million from $23.6-$28.6 million, targeting a margin of 16.3-17%.
Looking ahead, Telos expects the phaseout of low-margin third-party software resale to create a $32 million revenue headwind in 2027, with a modest profit impact. Management estimates the exit could improve gross margin by approximately 600 basis points on a full-year run-rate basis. It also expects a 400-basis-point sequential margin improvement from TSA PreCheck in the second half of 2027.
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TLS Q3 Earnings Beat Estimates on Identity Strength, Guidance Raised
Key Takeaways
Telos Corporation (TLS - Free Report) reported adjusted earnings of 9 cents per share for the third quarter of 2026, unchanged year over year. The figure beat the Zacks Consensus Estimate by 125%, helped by stronger-than-expected performance in its Telos ID business.
Revenues rose 7.3% to $55.2 million, surpassing the Zacks Consensus Estimate by 10.4%. Security Solutions growth drove the increase, while the company's Information Assurance business secured more than $58 million in new Xacta and professional services orders.
TLS Rides Security Solutions Growth
Security Solutions revenues climbed 16.6% year over year to $54.18 million from $46.48 million. Expansion of large programs in the Telos ID portfolio led the improvement, with TSA PreCheck enrollment volumes also exceeding management's earlier expectations.
Secure Networks revenues declined 79.6% to $1.01 million from $4.97 million as programs reached completion. Security Solutions accounted for approximately 98% of quarterly revenues compared with roughly 90% in the year-ago period.
Telos Corporation Price, Consensus and EPS Surprise
Telos Corporation price-consensus-eps-surprise-chart | Telos Corporation Quote
Telos Extends Xacta's Reach Across Agencies
New Information Assurance awards span Xacta products and professional services. Management expects the recently secured business to generate approximately $6 million in 2026 revenues and $20 million in 2027, with the contracts characterized as recurring rather than one-time projects.
The company's Xacta 360, Xacta.io and Xacta.ai offerings address security compliance, continuous monitoring and AI-driven automation. Recent engagements extend across defense, intelligence and civilian agencies, while management said previously discussed pending proposals remain separate opportunities.
Telos Brings Higher Profit in Q3 2026
TLS’ non-GAAP cash gross profit rose 3.1% to $23.76 million, although cash gross margin contracted to 43.1% from 44.8%. Both margins exceeded management's quarterly expectations.
TLS’ adjusted EBITDA grew 4.7% to $10.57 million from $10.10 million, exceeding management's guidance of $6-$6.8 million. This represented the highest quarterly adjusted EBITDA since the company's 2020 IPO. Adjusted EBITDA margin slipped to 19.2% from 19.6%, despite the stronger dollar profit.
Non-GAAP adjusted operating expenses increased 1.8% to $14.03 million. GAAP operating income reached $4.09 million against a loss of $2.47 million a year earlier.
TLS Maintains Robust Cash Conversion
Operating cash flow grew 3.3% to $9.44 million from $9.15 million. Free cash flow increased 11.9% to $7.39 million from $6.60 million, lifting the free cash flow margin to 13.4% from 12.8%. This marked the seventh consecutive quarter above a 12% free cash flow margin.
Telos ended September with $51.76 million in cash and cash equivalents compared with $53.18 million at 2025-end. The company spent $5.7 million to repurchase more than 1.2 million shares during the quarter, bringing year-to-date repurchases to approximately 2.8 million shares for $12.6 million.
Telos Sees Q4 Growth
For the fourth quarter of 2026, Telos expects revenues of $47.5-$50 million, implying 2-7% year-over-year growth. Management expects Information Assurance wins to support sales, with the non-GAAP cash gross margin projected at 43-44.5% on a more favorable mix.
Adjusted EBITDA is forecast at $7-$8.8 million, representing margins of 14.7-17.6%. Adjusted operating expenses are expected to increase approximately $1.2 million year over year, mainly because of higher labor and marketing spending.
TLS Raises 2026 Targets Amid 2027 Transition
Management raised full-year 2026 revenue guidance to $198.2-$200.7 million from $187-$195 million, implying 20-22% growth. It also lifted adjusted EBITDA guidance to $32.3-$34.1 million from $23.6-$28.6 million, targeting a margin of 16.3-17%.
Looking ahead, Telos expects the phaseout of low-margin third-party software resale to create a $32 million revenue headwind in 2027, with a modest profit impact. Management estimates the exit could improve gross margin by approximately 600 basis points on a full-year run-rate basis. It also expects a 400-basis-point sequential margin improvement from TSA PreCheck in the second half of 2027.
TLS’ Zacks Rank & Stocks to Consider
TLS currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer and Technology sector include Cisco Systems (CSCO - Free Report) , Analog Devices (ADI - Free Report) , and NVIDIA (NVDA - Free Report) . Each stock presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cisco Systems shares have gained 24.3% year to date. Cisco Systems is set to report first-quarter fiscal 2027 results on Nov. 12.
Shares of Analog Devices have risen 33.2% year to date. Analog Devices is set to report fourth-quarter fiscal 2026 results on Nov. 24.
NVIDIA shares have lost 2.6% year to date. NVIDIA is set to report third-quarter fiscal 2027 results on Nov. 17.